In 2013 Apple failed to reach an agreement to local mobile operators so it went straight to retail chains and selling online. It didn’t go too bad. iPhone sales doubled to 1.57 million units. After seeing huge spikes in demand, the local operators finally gave in and agreed to Apple’s terms. Nevertheless, almost 80% of all sales came directly from retail, skipping carriers.

So basically Apple sold $800 million worth of unsubsidized products without any help from local carriers, a surprisingly good result for the Russian market. “We’re really happy“, said Tim Cook in 2013.

Yes, the ruble drop may be a problem for Apple. But why close the store? Why block sales? Why not just switch to foreign currencies only? Why leave such a huge market? Sure, Russia is struggling with an economic a crisis but on a smaller scale – so is Europe. You don’t see Apple stopping sales there.

It may be that Apple was bound to leave Russia anyway and it figured this is the best moment to do so without worrying investors.

What happens in Russia, stays in Russia

Starting January 2015, Russia will pass a law forcing tech companies to keep Russian users’ data in Russia. That means Apple will have to move some of its servers to Russia and keep them there.

Now this is obviously an unacceptable situation. With tensions between Russia and the US, privacy and data security concerns will force the company outside anyway.

It may be that the ruble collapse is the best Apple can go about a bad situation: leaving a billion dollar market and still look like its saving the day.

Apple Pay is Apple’s take on mobile payments. It works by storing credit card data and then charging consumers with a simple tap to NFC payment devices. Most important: it’s a huge game changer in payments.

Tim Cook presents Apple Pay

With this product, Apple unveiled its grand vision of a simple, secure payment process. It can store multiple credit cards, it’s linked to the biggest card processors AND big banks such as JP Morgan & Chase or Citigroup. For now, not all Apple devices support Apple Pay but just give Apple a little time. The iPhone 6 and the iPhone 6 Plus come equipped with NFC technology. So will future products.

The big news: Apple is betting big on this product and you know what this means…

The retail industry hates it.

That’s right, even though Apple Pay registered 1 million credit cards in the first week and users love it, some retailers decided they know better.

Retail chains such as Walmart, Rite Aid, Target and many more chose to bet on a different technology, called MCX. The acronym stands for Merchant Customer Exchange and it is a network of retailers offering mobile checkout options through a product called CurrentC.

Seems a bit complicated? Well the short story is that even before Apple Pay was nothing but a rumor, some retailers thought – “hey, why let Apple have so much influence on our sales? Let’s build our very own mobile payment system!” (not an actual quote)

Pictured here: Not Apple Pay

So the MCX people built CurrentC. And by built I mean they have been struggling for years to come up with something that says Mobile Payments. When Apple Pay was announced, they went on and announced their own product.

The product is sliiightlty different from Apple Pay: it works only in the MCX network and works with QR codes. Plus it stores consumer personal info and connects DIRECTLY to the consumer’s bank account. No way that storing consumer data in the cloud and accessing consumer bank accounts could ever go wrong. Just ask Target (among those in the MCX) and Home Depot.

As the public decided they are not going to wait for CurrentC to show up, retailers such as Walmart and Rite Aid went on and blocked the technology that made using Apple Pay possible.

Now why would they do that? Why is Apple Pay such a big thing and why are these retailers so afraid of it?

1. Apple Pay links online and offline shopping

Amazon vs Walmart – 17 years revenue comparison

Ever thought of buying online and picking up in store? Or searching for an item in a physical store and asking store associates if it is available at another store? If you have you’ve probably noticed that service is lousy when it comes to connecting channels. Omnichannel retail is still in its infancy. To make things work companies have to rewire their IT infrastructure and get ready for a future where it doesn’t matter if orders are placed online, offline, in the mobile app or on the phone.

And that’s hard.

Big retailers have a problem adapting to this new landscape where the consumer is at the center of every transaction and operation. Everything is moving faster and the giants are not really that agile. For example have a look at how much faster Amazon is growing when compared to Walmart.

A large part of this change has to do with payments. Consumers now have to pay one way in the Brick-and-Mortar store. Another way in the online shop. Mobile shopping has yet another payment process. It’s frustrating and the challenge to connect all payment systems is a really rewarding area.

The mobile payments market is estimated at $90 billion and expected to grow. That’s why Google, Apple, Amazon, PayPal and even AliBaba want a piece of it.

So far Apple has managed to connect online and offline channels best. Apple Pay’s ease of use, integrated payment in Safari through the Keychain and many others make it a reasonable bet for the future.

2. Mobile Payments are happening, whether you like it or not

Mobile Payments may seem like a no-go right now. After all PayPal is available for quite some time on the mobile and Google has already launched and failed once with its Google Wallet. What change the future holds as to make Mobile Payments such a big thing?

The answer is Millennials.

The up and coming generation is now just beginning to earn and spend their cash but soon they will be a driving force in the economy. Unlike elder consumers, they have no problem bridging the gap between sales channels and they definitely don’t have a problem paying with their smartphones. IF it’s easy and secure.

In a recent Accenture study millennials were found to be ready to accept mobile payments. They were, in fact, driving the adoption in mobile payments. Among those surveyed, 60% did NOT use their mobile phones to pay. Their main worries: privacy (45%) and security issues (57%). Apple Pay solves both.

3. Everyone expects a revolution

The player that revolutionized the music industry.

Remember the iPod, the iPhone and iTunes? They are just three of the most disrupting technologies from the past decade. And they were all introduced by Apple.

The scenario is always the same: a large market in need of change. Market leaders were stuck in exploiting existing technologies. Everyone from label records to Nokia and RIM learned a hard lesson. When Apple goes after a large market, it will revolutionize it.

Apple Pay is a revolution and the MCX retailers know it. Right now they are negotiating their place in the future of retail.

4. It’s not just about the payments, it’s about the consumer

Apple, Pay!

Omnichannel payments is all about the consumer. Everything happens around his or her habits. The retailer doesn’t get to dictate what the consumer wants, when it wants it and how the product should be bought.

If you look at Amazon you’ll find that it’s just a very very large store. But is it? In fact, Amazon is a marketplace. An instrument for the consumer to choose from lots and lots of products (240 million in Amazon US), sold by lots of merchants.

At the core you’ll find the consumer account. The preferences, the brand loyalty to Amazon, the saved shipping addresses and others. For each Amazon user, Amazon is a PERSONAL deal.

But for now, those products can only by accessed through Amazon’s infrastructure. The big thing that Apple Pay does is putting your personal account for millions of products and hundreds of merchants where it should be: in your pocket.

By doing this Apple will take out Amazon’s and the likes most precious asset and liberalize it: The personal account. Walmart and the likes have misinterpreted Apple’s message. Their product is not an enemy: it’s the best tool they have right now against Amazon.

5. It actually works

Consumers love the fact that Apple Pay feels easy to use and most important – secure. It works online, offline, on the iPhone and on the Apple Watch.

Unlike Apple Pay, previous products were introduced as standalone products, not as part of an ecosystem and seemingly without any clear strategy and vision for the future.

PayPal has maybe missed its opportunity to become what Apple Pay will probably be. Internal company battles and unclear strategy made the company lose sight of how the market is shifting.

Amazon too launched Amazon Payments but its focus on online payments makes it a NOW product. It really isn’t future proof.

Apple Pay works great and it works great for a large audience. Apple has a huge user base and this user base trusts Apple. They use the company products and are willing to allow the company to store their credit cards. In turn, Apple has not let them down: Apple Pay just works.

Apple announced its newest products and everybody focused on the much awaited iWatch or the iPhone 6 and 6 Plus. The real news, however, both business-wise and from a consumer point of view is the launch of Apple Pay, an NFC (Near Field Communications) ready payment system. Simply put, Apple’s payment system allows customers to store credit card data on their iPhones and when the time comes, just tap to pay.

The product launch was not unexpected. With the previous operating system launch, Apple packed several features that would allow for better mobile commerce. The iCloud Keychain was introduced to Safari in order to allow both faster logins to known websites as well as, in the future, a faster checkout.

With Apple Pay, the Cupertino company joins the omnichannel payment war as was predicted in this previous post. Google, Amazon, Ebay (through PayPal), AliBaba and even Facebook are trying to get a piece of the $15 trillion payments market. As banks and established financial institutions have failed to meet customer expectations in mobile payments, the gap between needs and available options will probably be filled by one of the tech titans.

Google tried its luck with the Google Wallet, Ebay’s PayPal is now crossing the bridge into offline teritorry and Facebook recruited Paypal’s former CEO David Marcus. Marcus is the man that helped Paypal grow from $750 million in 2010 to $27 billion in 2013, so one can only assume Facebook is also serious about payments.

To help the product take off, Apple signed 220 000 merchants onboard its Apple Pay project. Among them: Mc Donald’s, Babies R Us, Macy’s, Staples, Sephora and of course, all Apple retail stores. The 220 k merchants are just 2.4% of the total 7 to 9 million merchants in the US but it is a great start given the fact that Apple has a habit on pulling seemingly impossible feats, starting with close to nothing.

For example the iTunes Store launched with not more than 200 000 songs and only Mac Users could move the purchased songs to their iPods By September 2012, it was home to more than 37 million songs, 700,000 apps, 190,000 TV episodes and 45,000 films. By February 2013, the iTunes store had sold more than 25 billion songs worldwide.

So yes, there is a pattern here and there is probably a whole lot of room for improvement in the payments area.

Apple Pay’s security

Although recent iCloud security issues clouded the product launch, the security behind the payment technology looks great. First of all it allows customers to save credit card data on their phone without exposing sensible details to potential hackers. It also features the Touch ID identification technique where users sign payments with their biometric input (the fingerprint).

The credit card information is not beemed online but rather stored in a special chip, on the iPhone, a hardware – software combination that Apple named Secure Element. When a transaction is processed, credit card details are not sent to Apple’s servers and the retailer can’t see the data. Instead, a proxy account number is issued that the retailers charges. Each transaction is secured by an unique security code that authenticates it. Apple has laid more layers of security then we came to expect and that should work just great. But take it with a pinch of salt because everything is secure untill it is not anymore.

The company states that it does not store transaction data regarding location, products purchased or the amount the customer has spent. That certainly leaves room to question why exactly would Apple choose not to store these valuable data. The answer lies with data from Bloomberg sources. According to these anonymous sources, Apple has partnered with banks in the system to receive a percentage from each transaction.

The banks involved are JP Morgan Chase & Co, Bank of America and Citigroup Inc. They agreed to integrate their cards into the system and alongside came three of the biggest card networks – Visa Inc., Mastercard Inc. And American Express Co.

So we have a great lineup for Apply Pay and although NFC payments where slow to take off, it seems that Apple’s incredible effort to bring every important player on board will be the push mobile payments needs right now.

As the company promissed it won’t charge users, merchants or developers, one of the biggest issues (the cost issue) seems to be out of the way. With customers using their mobiles more and more, retailers will be forced to adopt some form of omnichannel payment system.

How does Apple Pay benefit retailers?

Retailers and merchants in general receive several incentives to adopt NFC payment compliant technology.

First of all, the Apple Pay system allows a greater connectivity between online and offline sales channels. Customers can order products on the web store, in the brick and mortar stores or within a mobile app. The security and speed allow for greater ease of use.

The second big advantage is payment speed. By just tapping the phone, customers can pay within a 10 second timeframe, improving sales speed. This allows merchants to move customers through almost instantly.

Third big advantage Apple brings is an improvement in mobile purchases and payments. Although customers are so far browsing for products, they rather pay on the web store or order and pick up in a physical store. The biggest bottleneck is the mobile payment experience, one that is just awful for most retailers.

Famously Amazon has solved this issue with its One-Click Payments, where registered customers can use previously stored credit card data to move as fast as possible through the checkout process. Amazon’s patent sits at the heart of Apple’s payment system within iTunes, an extraordinarely usable example of mobile payments.

Actually that’s one of Apple’s strong points when implementing Apple Pay. The company will leverage almost 800 million iTunes accounts, most of them having their cards linked to the account. The magic of paying with a tap will now probably become mainstream.

What comes to mind when you think digital payments? That would probably be PayPal. We all know Ebay subsidiary PayPal leads the game in digital Payments but now the game is set to change.

Paypal bets big on POS integration

Although it does have the first mover advantage and has been going strong into omnichannel retail, PayPal is threatened by the largest tech companies in the world:

First of all, company president David Marcus has resigned (or has been fired as rumor has it) to join Facebook. His mission – building a new type of … messaging tool. And by that I mean Facebook Payments.

Google is pushing hard on its Google Wallet, a mobile bridge between online and offline sales. It is a fully NFC compatible payment system, which now accepts all major credit and debit cards, loyalty cards and discount cards. It also allows customers to save offers and buy using touch-to-pay systems.

Everyone raved about the Amazon phone but the actual big news is … Amazon Payments. With over 200 million credit cards stored and the ability to pay with one click (for a very long time Amazon held the patent on that), Amazon is probably the biggest competitor to Ebay’s PayPal.

Apple also has a huge database of credit cards stored on its server. It also has a massive database of customer options, customer history and a fully featured Keychain app built into Safari, ready to help customers do a quick checkout. Its wide device adoption allows it to become one of the most important players in the omnichannel payments area.

It was 1999. Only three years have passed since Steve Jobs returned to Apple. Britney Spears was climbing the charts with “Baby one more time” and engineers at Apple were a few months into launching the Mac OS 9. They would dub it “The Best Internet Operating System Ever”. It was a visionary product and an awesome precursor to today’s Internet-enabled operating systems.

Unlike its direct competitor, Microsoft, Apple had a simpler way of shipping its operating systems. They would either come pre-installed on purchased computers or subjected to a standard $99 upgrade fee.

“[…] Steve provided some details about how the advertising would work. At systems start-up, the user would see a sixty-second commercial. This ad could be regularly changed via updates from Apple’s servers. Throughout the rest of the OS, ads would appear in places where they had the most relevance. For example, if the print dialogue box indicated that you were running low on printer ink, you might see an ad from Epson with a link to its store – so you could buy some ink right then and there”.

The consensus was the main ad, the one running at systems start, would be a premium spot for top-knotch companies. Those Steve admired, say BMW and Nike. Once the ad started running , some system functions would be suspended so the user had to see the whole ad.

Apple engineers and staff were psyched about the idea and they loved the fact that such a new interface could let users try the OS and buy it whenever they felt like upgrading. Apple even registered the patent for this, listing Steve Jobs as the main inventor. Fortunately this system never went public and Apple went on to build its success and later on give out the Maverick OS upgrade for free, but that’s a story for another post.

Apple thought about it, Google and Amazon did it.

Apple was not the only company that thought about the ad-supported OS, but it was the first to seriously consider it.

For starters – like most smartphone users you’ve heard about Android. It’s the most popular mobile OS (or at least the most used). It’s free and it helps Google leverage on mobile ads. So much that it Google now takes in about half of all mobile ads revenue.

Google’s other venture into ad-supported OS is Chrome OS / Chromium OS – the web OS that has Google at its center. And Google’s Ads.

Yeah, both Google and Apple thought about an ad-supported OS. The time-frame, however, is pretty important. Apple thought about the ad-supported OS, it nearly implemented it and ditched it. An year later (2000) Google launches AdWords. After yet another 5 years (2005) Google buys Android. 6 more years passed until Google launched its Chromebooks in 2011.

Amazon, the king of online retail, thought this is a great idea also.It started using it on its Kindle readers in 2011. Later on the Kindle Fire was subsidized through ads. The ad-supported device / OS seemed so good that Amazon didn’t actually bothered to built no-ads versions. Or talk about it.

Apple’s “say no” culture lead to dumping the ad-supported Mac OS

Fortunately Apple scraped the idea and later on figured out an way to give the Mac OS for free (it’s doing pretty well selling apps and music). Its focus on delivering a great user experience finally won. It was Probably Steve Jobs who remembered his own words, spoken at the 1997 Apple World Developers Conference:

There are retailers and then there are super retailers. Here’s a list of some of the bravest and strongest online retailers and their super hero avatar.

Let’s start with number 5:

5. Batman

Secret Identity: Apple.com

The Batman Super Retailer is a mighty hero – strong, determined but first of all – rich. He uses gadgets to fight off the competition and just when you think he is going down he manages to bring out a game changer out of his handy secret belt (once every year during the WWDC).

But oh my under its dark armor (designed in California, made in China) lies a hurtful secret: The Batman Super Retailer misses his dad, killed by cancer. He tries to cope with the loss by continuing in its tradition and trying to save the world from bad design. Sometimes unsuccessfully.

Biggest enemies:

The Redmond Joker and Mr. Android.

Weakness:

The Dark Knight is everybody’s target. Everyone talks about the “the iphone killer”, “the ipad killer”, “the Apple killer”. Why? Because “he’s the hero Gotham deserves, but not the one it needs right now… and so we’ll hunt him, because he can take it.”

3. Spiderman

Secret identity: Fab.com

You know that awkward kid that no one actually cared about back when he was into, what was that – photography? Oh, no, wait – it was social networking. It seems he is not so awkward anymore. Overnight he turned into this fabulous, tights wearing, home decorator that simply just loves to help you pick that lovely new carpet for your living room (yeah, he’s also gay).

His super powers are a. his spidey senses when it comes to picking beautiful products and selling them online, b. climbing on walls and giving you ideas on how to better redecorate, and last but certainly not least his unmatched ability to adapt fast to the market. By doing things like letting you design the furniture you want to buy.

The Spiderman Super Retailer has recently moved on from the recently mainstream Flash Sales market and into this new thing he’s doing right now, that doesn’t include Flash Sales and is aaaaalll about design. Also – you’ve probably never heard about it.

Biggest enemies

The Green Goblin living on One Kings Lane, and a distant cousin of Iron Man, the Doctor Octopus also known as Gilt Home.

Weakness:

Spiderman the Super Retailer catches clients in a pretty expensive marketing web. It seems that its greatest weakness is the high customer acquisition cost.

3. Iron Man

Secret identity: Gilt.com

Rich, famous, bright and ready to wear some of the best suits in town. The Iron Man Super Retailer was fathered by Kevin P. Ryan, that had a history of investments in some companies you have probably heard before: Business Insider, Mongo DB, Double Click. Although his corporate siblings are definitely bright, Gilt.com seems to be the prodigal son.

The Iron Man retailer is no match for any of his enemies when it comes to building the best technology, working and managing the smartest people and just being a genuine charismatic fashion and style icon.

Although not really into astrophysics the Iron Man Super Retailer manages to learn new things on the fly, adapt and … look … he does offline retail now.

Biggest enemies

The dreaded Miss RueLaLa – rich, smart and uber-sexy. She is backed up by her corporate hotshot husband, Mr. Ebay and has so far snatched a couple of victories from Mr. Gilt.

Weakness

2. The Hulk

Secret Identity: Walmart.com

When it comes to this Super Retailer – one thing’s for sure: you do not want to make him angry. When things go south this green retail monster will squash its competition with its low prices and national coverage. You are never too far from him and you won’t be able to hide when he gets all “Hulk, Smash!” on you.

What’s his super power? The Hulk Super Retailer has the upper hand when it comes to size, strength and endurance. The whole operation employs 1.6 million people, it’s bigger than Home Depot, K-Mart, Costco, Kroger, Target and Sears, combined and most americans (90%) live within 15 miles distance to a Walmart shop.

His online operations aren’t to shabby either: it made $4.9 billion in 2011 and that’s him not really trying. When exposed to the Big Poppa Walmart’s Green Dollar Radiation this Super Online Retailer has the potential to make its fellow competitors look like scrawny kids.

Biggest enemies. Biggest weakness:

The biggest enemy this hunk of overgrown retailer has is itself. Bigger is not always better. The Hulk is either a smashing machine or the smart researcher working at Walmart Labs. He is still trying to control its size and keep its balance while growing so fast. He is not yet there but he will be. From that moment on there will be only one Super Retailer that will, maybe, be able to face it:

1. Superman

Secret identity: Amazon.com

This Super Retailer is actually in a class of its own. He is stronger and faster than anyone else online. He has a global reach and can fly and wirelessly deliver its products to anyone, anywhere. He grows faster than anyone else and has so far proven unbeatable.

He was born in a time when people didn’t believe in its type of heroes. He struggled and after some slightly awkward teenage years (it took Amazon 9 years to turn a profit) it finally showed up at the graduation party, red cape flowing and all.

He is known for making a living of print but in time it diversified its product catalogue through a combination of digital content and marketplace products. After all – how could this Super Super Retailer finance its Fortress of Solitude other than by reporting a whooping $48 billion revenue in 2011.

Biggest enemies:

General Zod, a super enemy seemingly out of this world, seems to have set up shop with AliBaba.com and is now threatening Superman’s global reach. The Hulk (mentioned earlier) is not too happy with Superman’s hegemony either and is trying to catch up but is not yet strong enough to go head – to – head with the Man of Steel.

Weakness

No one has actually found the Kryptonite that is said to be the Amazon killer but rumor has it that its expanding marketplace and investment in digital sales might not be so healthy after all.

Apple unveiled its new take on the iOS – the iOS 7. Certainly a big change in terms of design, the iOS 7 is actually a bit more than that – it’s an assault on a couple of yet untapped markets. Let’s forget about the shiny new icons for a few minutes and let’s focus on what really matters: iOS7 is a huge improvement for what we now call Mobile Commerce.

What does this “big change” mean for mobile commerce? First off…

How big is iOS on the mobile commerce market?

Let’s have a look what the iOS means in terms of mobile usage and mobile commerce:

First off – iOS is not the best sold mobile operating system but that doesn’t really matter as the iOS is by far (61%) the most used mobile operating system when browsing the internet. As a result, when it comes to mobile commerce, the iOS is the most important operating system.

We know m-commerce is growing fast, just like mobile usage. Last year meant an 81% increase in m-commerce sales, up to $ 24 Billion and as eMarketer estimates, the growth will continue at a fast rate in the following years, reaching almost $90 Billion in 2016.

That means that the mobile space means big bucks and Apple is all about big bucks. The new operating system is meant for the masses, it’s meant to take on the new wave of heavy (borderline obsessive) mobile users that will be soon shopping online from their mobile devices first.

So – we know m-commerce is big and it’s getting bigger. We know Apple dominates the market. Let’s have a look at iOS7 ‘ s new features from a mobile commerce perspective:

1. The iCloud Keychain will make mobile shopping easier

The iCloud Keychain is meant to make it easier for the iOS user to store passwords and credit card information. As mobile devices become more and more personal they will be carrying more and more of our personal information, personal history and, of course, cash.

Even with such a personal approach to mobile usage, one of the biggest bottlenecks in mobile commerce remains the actual checkout. Partly because there are so many inputs one has to fill in. Partly because taking out your credit card and filling in payment details while sipping the Venti Latte at your local Starbucks is not really what comes to mind when you think “secure payments”.

2. The iOS and NFC (near field communication) payments

The iCloud Keychain integration goes beyond online payments, actually. It will probably work also as a NFC wallet, if this patent is any indication. NFC payments and transfer will probably replace the plastic cards in the near future and Apple is sure to be a part of the m-payment revolution.

3. Siri may be the next personal shopping assistant

Siri

Apple’s personal and sometimes quite charming personal assistant, Siri, was so far thought to be an overhyped voice controller for the mobile devices. With the iOS 7 Siri gets lots of improvements, with related tweets and social media connectivity, new voice features, improved usability for french and german speakers and Bing instead of Google.

Siri also gets to do a little predictive analysis to better match the user’s need. With better and better suggestions Siri will quickly become the go-to …. uhm … feature … when in need of anything, really. That includes stores, products, restaurants, cafe’s and so forth.

With Siri dictating the recommended venues to spend your money in, that may become a serious threat to Google’s search hegemony, which might be one of the reasons Apple is ditching the search leader.

4. iOS7 in the Car and the Radio Killer

iOS7 in the car

Apple has been working closely with a couple of car manufacturers, such as Mercedes Benz, Honda and Volvo, to tap into the emerging market of car entertainment and technology. The automotive industry has really taken its time improving car entertainment and control technology but it seems Apple has once again managed to bring on the innovation it is known for.

The “iCars” will be available starting 2014, the year cars will probably start coming equipped with wireless internet. Such news may mean an improved driving experience as Apple promisses a new car experience.

As the iOS 7 comes with an “iRadio”, streaming from Apple’s iTunes library, that may be very bad news for both conventional Radio Stations, online radios and probably, even the new music stars – on demand streaming apps such as Pandora, Spotify or Deezer.

The iOS 7 in Car integration also means location based recommendation from Siri and a decrease in local radios driven sales. Instead Apple will probably push forward some kind of location based ad system. This was probably the reason it was bidding against Google for Waze.

You may wonder why is the iOS7 in the car such a big news for m-commerce. The answer is the letter “M”, for mobile. The car becomes the actual “mobile device”. The iOS7 car integration may be a whole lot more than we expect in terms of market disruption.

Conclusion

Maybe Apple’s iOS7 is not its best take on mobile interface design. Maybe they did get a little too inspired by Windows Mobile. But also, maybe we’re underestimating the new, Steve Jobs free Apple. The company showed guts and determination at launching a revolutionary, if unusual, product. Apple may stumble once in a while but the company continues innovating and bringing change to new markets. The iOS7 may not have the prettiest icons but it is sure as hell huge news for mobile commerce and the car industry.

Any Apple user knows that there is no way to keep an iPhone or iPad for more than 2 or 3 years and still be happy about it. If you’ve ever bought an iPhone or iPad you know how it goes: you buy the new product, you fell in love with it (it works just great, it looks awesome and everybody wants to see or touch it) and before you know it someone at Apple unveils the new version.

The new version is never something revolutionary. It’s usually just “innovative”.It does have some small, incremental upgrades, just enough to call it a “new” product, but there is no actual need to switch over, unless you are one of Apple’s executives. However, next thing you know you start loosing your signal, apps crash, and you’re not feeling so good about your once loved device. But nothing changed. It’s the same device, it has the same specs but all of a sudden – it’s not good enough.

So you go and buy the new one (it’s never cheap) and you feel this is the device you are going to pass on to your children. Buuut… Apple decides to launch another next year and it’s back to the Apple Store.

Well – there is a reason for this cycle to happen. The reason is profit. In order to keep the cash coming Apple, and any other large company for that matter, needs to keep its customers coming back to buy more. There is no stopping the money-making machines. Profits need to keep coming, people need to keep buying. Otherwise we stumble upon recessions.

Actually, that’s how the term “Planned Obsolescence” got coined. Mr. Bernard London wrote “Ending the Depression through Planned Obsolescence” in 1932 as a method to stop the chaos resulted from overproduction and surpluses. He stated that the Government should impose a certain Planned Obsolescence on products, so customers would keep coming back and buy more, therefore restarting the economy.

The Phoebus Cartel

Although the theory was not the smartest and most popular thing written in that period it was one of the ideas floating in the mainstream. Such an idea was pretty good for a bunch of companies to form the Phoebus Cartel in 1924.

Some of the companies that formed the Phoebus Cartel you probably have heard of: Phillips, Tungsram, Osram, General Electric. What did “Team Light Bulb” stood for? You guessed it. Profits. The companies agreed, among others, to impose an 1000 hrs lifetime threshold on all light bulbs sold. Those that allowed their light bulbs to run for more than 1000 hrs were fined by the corporation controlling the cartel.

You may recognize this as what we now call “Planned Obsolescence”. Yes, the concept has been incorporated 89 years ago.

Good thing the Government stepped in and saved the world. Oh wait… it didn’t. The Cartel’s operations were only stopped when WWI started.

Planned Obsolescence makes its cross-industry debut in 1954…

… when industrial designer Brooks Stevens used the term to show that people want the “new thing”, whether it is a newly designed car, or the latest TV. He showed that companies can and should integrate, first and foremost, stylistic upgrades to their products in order to keep their clients coming back to the store and buying more.

You should note that planned obsolescence comes in many forms but the most popular and cost effective is style obsolescence. You can see this in the automotive industry (where companies redefine their stylistic approach every 3-5 years), the fashion industry (yearly cycles of stylistic obsolescence) or the IT industry where Apple seems to be the undisputed champion.

Apple is not the only company using planned obsolescence to sell more. It’s just the best at it.

All companies that look forward to survival and profit need to have some kind of obsolescence built into their products. The alternative, in the present economic system, is the company’s demise.

Apple understood this early on when Steve Jobs came back to the company with a vision for the connected ecosystem. He thought of a network of devices that would serve the customer’s every day needs for information and connectivity.

With the Apple connected home all of the products work seamlessly with one another. Once the customer has bought the iPod, he will buy the iPhone, than the iPad, than the Macbook. And that is just the hardware. There is an army of developers that use the AppStore to offer the newest apps. iTunes brings the world’s library of music and movies closer. As a result, in time, the customer gets locked-in and has little or no option to move his data or purchase options to the competition.

This was the big innovation Apple brought to planned obsolescence. It usually works within monopolies or at least oligopolies. You need to have very little or no competition to make sure the customers don’t just switch sides when you force them to upgrade their products. Apple has managed to bypass this: it’s not a monopoly, it’s just a monopoly for it’s own customers.

One more thing: Can the world handle planned obsolescence?

There are many reasons this practice isn’t helping anyone in the long run. First off – it leaves customers/people ever dissatisfied and unhappy. There is now settling for a certain product, and there is no lasting pride or meaning in acquiring so much (in time) useless objects.

Secondly – the environment can’t handle so much waste. Even though some countries have started regulating the disposal of old electronics and home appliances we are a long way from a real solution for the waste our consuming habits leave behind. We keep buying, losing interest and throwing away our old products. We are still decades away from product cycles that plan recycling and reusing as part of the product’s life cycle.

Last but not least we cannot afford to buy so much products. Planned obsolescence is a direct cause of consumer habits we cannot afford. Credit has left present and probably future generations in debt yet most companies still think they can thrive on this fake growth. But for how long?

Conventional (TV, print, radio) advertising often relies on research and targeting methods such as focus groups or demographic targeting to increase brand awareness and sales. These methods seem to be more and more outdated as targeting technology is already delivering better results.

A (very) short history of advertising research and targeting

In the past, as media was unidirectional (broadcaster to consumer), there were few ways retailers could efficiently target potential consumers. Advertisers would use consumer profiles and split purchasing options through demographic indicators (age group, location, education, sex etc.). By using statistic results they could outline marketing opportunities for certain demographic groups (Ex. “Women between 25 to 35 years, urban, having higher education are more likely to buy Product X”).

Having (theoretically) discovered a potential consumer profile they would then buy media in newspapers, radios or TV stations that would best appeal to that certain demographic group.

David Ogilvy

Of course this is just a skeletal description of the whole targeting process but it explains the process pretty well. Many companies have benefited greatly from this targeting and advertising system. Most of the brands we now know and buy were built this way. Even now, decades after the likes of David Ogilvy were setting up the rules on research-based advertising, the system is virtually unchanged.

“I notice increasing reluctance on the part of marketing executives to use judgment; they are coming to rely too much on research, and they use it as a drunkard uses a lamp post for support, rather than for illumination.” – David Ogilvy

How did the Internet change research and targeting?

Few could have predicted the impact Internet was to have on commerce and economy. Even less would have guessed how this initially “exotic” media would impact research and targeting.

20 years ago there was no marketing concept that could explain AdWords targeting and not be considered science-fiction.

Internet targeting and advertising renders most of conventional knowledge on research obsolete as technology has achieved what was once impossible. 30% of all human population is now in reach of all advertisers and they can now target more than just demographics.

Behavioral marketing is a concept that could not be possibly be achieved with conventional media. Using consumer behavior rather than demographics advertisers can target real time preferences and individuals rather than demographic groups. Say a user is known to have previously visited a car dealership website. He then browses websites in search of reviews on different car models. The car dealership could potentially target this exact user and serve him the most informative ads. Advertising ROI is sure to increase this way.

Some companies have become increasingly good at Internet research and targeting. One of them is now the most valuable company in the world in terms of market capitalization. Let’s have a look at how Apple, Amazon, Facebook and Google use large data to target and monetize consumer traffic.

Amazon personalized recommendations

Amazon is well known for its personalized products recommendations. How can it do this? Short answer: large data on consumer purchases and mathematics. Longer answer: Amazon holds a patent on its product recommendations which you can have a look at here (issued in sept. 2006). Although rather technical it focuses on certain key elements:

similar products information: say you bought three SF books. Similar products would be other books in that category. Some of these books would be more popular in terms of item ratings, reviews, views and purchases.

item affinity is the probability of some products to be purchased together. Say you are buying a Kindle on Amazon. You are very likely to buy a cover or case to protect your device. That means these products have a high affinity index

driver items are those products that are most likely to drive traffic to store. Again – the Kindle, Amazon’s best seller is not only a driver item but also a platform that insures further product purchases.

user path: the consumer will follow a certain path until it ads a product to the shopping cart or confirms a purchase. These paths are very important as they can be used to “guide” consumers to products they are most likely to purchase.

Using these information (and probably more) Amazon can first map users in consumer groups (1), extract popular, affinity and driver products (2), compile most profitable user paths based on previous history and other users actions (3) and than recommend the items most likely to increase basket size.

Recently Amazon announced the launch of its Kindle Fire product. This product is built on a Android platform and uses a proprietary web browser called Silk. The browser optimizes web traffic by routing it through Amazon’s servers. As Amazon already holds information on user profiles (users will have to login to synchronize their book collection) and now data on web traffic it can further improve its recommendations.

Apple Genius recommendations

Although Apple does not explicitly state it monitors iOS user actions it doesn’t deny it either. If it does, however, it might access a huge pool on users data such as web traffic, mobile purchases, locations, call history, social networking information (through access to contacts information, call history, SMS and iMessage history etc.). Basically everything there is to know on its customers profile.

For now the most visible way Apple uses data to increase sales is iTunes Genius, the music and video recommendation system. iTunes Genius uses purchase history and iPod activity to recommend potentially interesting songs, albums or videos.

Although iTunes Genius probably uses a system similar to Amazon’s it is not yet known to be as accurate. The performance issues are probably connected to the number in customers and items on sale. Amazon has a wider products inventory and a larger pool of potential customers. This leads to a larger database and increased accuracy.

Technology based companies have changed the way we think of consumer targeting and advertising. Innovation lead to profits and behavioral targeting will probably develop in the future. Tomorrow we’ll have a look at how two of the largest advertising – revenue based companies, Facebook and Google, use large data to improve consumer targeting. Stay tuned.

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In a historic decision the San Jose, California courtroom ruled that Samsung did infringe in some of Apple’s patents. The court ordered Samsung to pay over $1 billion in damages for patent infringement.

The court ruled that Samsung did, at times willfully, infringe on some of Apple’s iOS patents: the bounce back on lists, pinch to zoom etc. As a post-trial response Samsung announced it will fight this decision and that the court ruling affects the consumers.

While it’s pretty obvious that Samsung borrowed, to say the least, some of Apple’s hardware and software design and interface elements the decision is clearly going to have negative consequences on the mobile phones and mobile applications market.

The court ruling changes everything. Again.

1. Apple will continue its growth, having secured its proprietary hardware and software design – Apple is already the biggest company ever, in terms of market valuation. After Steve Jobs’ demise many wondered if the company will continue to grow. It did. This year saw the rise of incumbent Android based mobile devices which were growing at a faster rate than iOS based ones (Android is the dominant mobile OS in the US) and threatening Apple’s hegemony. Samsung was the biggest challenger in terms of hardware development. Having taken a massive shot at the opposition Apple can continue focusing on innovation and expanding its market share.

2. The mobile market will suffer from this decision. Samsung is one of the biggest competitors to Apple. As the smartphone market is ever increasing Apple just made a very large step to a de facto monopoly on this market. While they couldn’t do that by economic means, they showed they can do it through legal arguments. The decision to punish Samsung on adopting the interaction methods Apple “invented” is like ruling that only one PC manufacturer can ship PC’s that use keyboards and mice for user-to-computer interaction.

3. The target is not Samsung. It’s Android. Apple doesn’t care that much about the fact that Samsung has copied its products. It was just the easiest target. Otherwise they could have just sued every other smartphone manufacturer – it’s easy to see that the iPhone shifted the entire mobile industry to a different direction. One that Apple holds patents on. What Apple is really worried though is the Android OS. It’s popular, reliable and it is growing way faster than the iOS. Of course Apple still rules the market in terms of revenue but not for long. Amazon is already generating 89% of Apple’s App Store Revenue through its own Android store. This leads us to…

4. Everyone sees the jury decision as Microsoft’s chance to shine. But it’s Amazon that will benefit most. Microsoft can try and try to reinvent themselves. They won’t. It’s a corporate dinosaur that lacks innovation and courage. You know who does have those things, plus a ton of cash? Amazon. Amazon has had an amazing trajectory the past 5 years having reinvented reading with Kindle and now challenging Apple’s reign in the mobile app area. They are closing in to Apple in terms of mobile – generated transactions. With Samsung out of the picture they will be able to lead the Android revolution.

5. Apple’s actions might backfire. Remember the days when Microsoft ruled the IT world with a iron fist? The were used to buy smaller competitors, drive them out of business or sue them out of the game. It didn’t work so well after all. Right now people are buying Apple products because they love the brand. If the brand shows its money hungry face, the feelings towards the brand might be affected and turn into decreased revenues and company valuation. After all – the market is all about perception.

In my opinion the Apple – Samsung dispute should be resolved by the markets and the consumers, not in a courtroom. It is a dangerous precedent that harms an young and fast-growing industry. Patents or no patents there are millions of Samsung users that will suffer from this decision.

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